THE BALANCE SHEET POCKETBOOK

By Anne Hawkins and Clive Turner
Drawings by Phil Hailstone “A uniquely accessible guide - if you only read one book on finance, read this!” Peter Colley, Director of Finance and Membership Services, RAC Motoring Services Ltd “The authors’ wealth of practical experience and understanding of the line manager’s perspective is fully reflected in this clear and readable book.” Ray Jennings, Human Resources Director, Dowty Aerospace

CONTENTS INTRODUCTION 1 THE BALANCE SHEET Use of Funds (Fixed Assets. financing costs. summary CLASSIFICATION OF EXPENDITURE Why classify? Capital or Revenue? control FINANCIAL REPORTS Introduction 5 69 NB APPENDIX ONE Jargon explained APPENDIX TWO Calculating depreciation 93 101 41 This symbol refers the reader back to a previous section where the item or term has already been explained . the balancing act. published format 35 45 2 THE BUSINESS FINANCIAL MODEL Sources of Funds. Uses of Funds. making profit. Source of Funds. operating profit. published format PROFIT AND LOSS ACCOUNT Profit is not cash. Working Capital).

INTRODUCTION 1 .

. and a fear of numbers! ..INTRODUCTION Fix CONFUSED? Wo r k i n g Cap ital loyed Re s es erv ed Ass ets Ea r g nin s Credit lE apita C mp ors tion Debto Deprecia rs 2 Many people are discouraged in their attempts to understand financial statements by the jargon accountants use .

Balance Sheet .Profit and Loss Account 3 .INTRODUCTION DON’T BE PUT OFF! Use the Structured process: Step One: Step Two: Step Three: Develop a ‘common sense’ model of business finance Understand the impact of capital and revenue expenditure on this Business Financial Model Extract from this Model the .

the one which has made more profit has done better’ ‘The accountant balances the Balance Sheet by entering a balancing figure somewhere .. ◆ ◆ ‘The Balance Sheet tells me the value of the business’ ‘At the year-end the retained profit must be somewhere.INTRODUCTION COMMON MISCONCEPTIONS Listed below are some of the more common misconceptions we. 4 .. or the accountant’s drawer’ ‘If the company’s share price rises it has more money’ ‘If I compare the results of two businesses.. See if any of them seem familiar . encounter in our training sessions. in the bank. the authors. probably profit’ ◆ ◆ ◆ These misconceptions will be dealt with at appropriate points in the book..

2 THE BUSINESS FINANCIAL MODEL Page Introduction Source of Funds Uses of Funds Making Profit Summary 6 9 18 28 31 5 .

THE BUSINESS FINANCIAL MODEL 2 INTRODUCTION In this section a Business Model is developed which explains in straightforward terms how money works within the business. 6 .

THE BUSINESS FINANCIAL MODEL 2 THE MODEL SHARE CAPITAL LOAN CAPITAL RETAINED PROFITS SOURCE OF FUNDS USE OF FUNDS FACILITIES / PROCESSES FIXED ASSETS Depreciation PRODUCTS / SERVICES WORKING CAPITAL Sales Less: Attributable Cost Operating Profit Less: Less: Dividend Interest Tax Earnings Retained Profits 7 .

THE BUSINESS FINANCIAL MODEL 2 APPLYING THE MODEL Use the model to understand your business ● ● ● ● How is your business funded? What have you used this money for? How much profit do you make? IS IT WORTH THE EFFORT? Make the Business Model and Financial Reports work for you! Let’s start at the beginning 8 To get the fully access of the document please click here. .

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